A2: Other Reports Flashcards
An auditor may express an opinion on an entity’s accounts receivable balance even if the auditor has disclaimed an opinion on the financial statements taken as a whole provided the:
Report on accounts receivable is presented separately from the disclaimer of opinion on the financial statements
If the auditor has disclaimed an opinion on the financial statements taken as a whole, the auditor may express an opinion on an entity’s accounts receivable balance ONLY if the special report on accounts receivable is presented separately from the disclaimer of opinion on the financial statements and the accounts receivable balance does not constitute a major portion of the entity’s complete set of financial statements
Financial information is presented in a printed form that prescribes the wording of the independent auditor’s report. The form is NOT acceptable to the auditor because the form calls for statements that are inconsistent with the auditor’s responsibility. Under these circumstances, the auditor most likely would:
Reword the form or attach a separate report
An auditor should not sign a preprinted report that include statements that are inconsistent with the auditor;s responsibility. Instead, the form should be revised or a separate, more accurate report should be attached
Harris, CPA, has been asked to audit and report on the balance sheet of Fox Co., but not on the statements of income, retained earnings, or cash flows. This audit will not be performed in conjunction with an audit of the complete set of financial statements. Under these circumstances, Harris may:
Accept the engagement because such engagements merely involve special considerations in the application of U.S. GAAS
An audit of a single financial statement is permitted under U.S. GAAS. An audit of a single financial statement can be performed as a separate audit or in conjunction with an audit of the complete set of financial statements
Delta Life Insurance Co. prepares its financial statements on an accounting basis insurance companies use pursuant to the rules of a state insurance commission. If Wall, CPA, Delta’s auditor, discovers that the statements are not suitably titled, Wall should:
Disclose any reservations in a basis for modification paragraph and qualify the opinion
Financial statements prepared in accordance with a comprehensive basis of accounting other than GAAP that are not suitably titled require a qualified opinion with a basis of modification paragraph
In reviewing the financial statements of a nonissuer, an accountant is required to modify the standard report for which of the following matters?
Inability to assess the risk of material misstatement due to fraud: NO
Discovery of significant deficiencies in the design of the entity’s internal control: NO
Modifications are made to the standard review report only when there is a departure from generally accepted accounting principles. Neither an inability to assess risk nor a discovery of internal control deficiencies constitutes a departure from GAAP, and therefore neither would result in a modified review report. Note that assessing the risk of material misstatement due to fraud is a requirement of an audit, not a review. Also, note that testing of internal control is not required in a review of financial statements of a nonissuer.
An accountant has compiled the financial statements of a non-issuer but declines to issue a compilation report. This is an example of:
An inappropriate reporting decision, because SSARS require that a report be issued when an accountant has compiled the financials statements
SSARS requires compiled financials statements to be accompanied by a compilation report.
During an engagement to review the financial statements of a non-issuer, an accountant becomes aware that several leases that should be capitalized are not capitalized. The accountant considers these leases to be material to the financials statements. The accountant decides to modify the standard review report because management will not capitalize the leases. Under these circumstances, the accountant should:
Disclose the departure from GAAP in a separate paragraph of the accountant’s report
Failure to properly capitalize leases that the accountant considers material to the financial statements is a departure from GAAP. If management will not capitalize the leases, the accountant should modify the standard review report or withdraw from the engagement. If modification to the report is sufficient to disclose the departure from GAAP, then the accountant may modify the review report.
If requested to perform a review engagement for a non-issuer in which an accountant has an immaterial direct financial interest, the accountant is:
Not independent and, therefore, may not issue a review report
An accountant with an immaterial direct financial interest in a client is no longer independent with respect to that client. The accountant is precluded from issuing a review report on the financial statements of an entity with respect to which he is not independent. If the accountant is not independent, he may issue a compilation report provided he complies with the compilation standards
Kell engaged March, CPA, to prepare to Kell a written personal financial plan containing unaudited personal financial statements. March anticipates omitting certain disclosures required by GAAP because the engagement’s sole purpose is to assist Kell in developing a personal financial plan. March is:
Not required to follow SSARS because preparing written personal financial plans are excluded from SSARS requirements
SSARS explicitly states that SSARS does not apply when an accountant prepares personal financial statements for inclusion in written personal financial plans. Other situations where SSARS does not apply is when the accountant prepares financial statements:
- solely for submission to taxing authorities
- in conjunction with litigation services that involve pending or potential legal or regulatory proceedings
- in conjunction with business valuation services
Compiled financial statements should be accompanied by an accountant’s report stating that:
The accountant conducted the compilation in accordance with Statements on Standards for Accounting and Review Services
Compiled financial statements should be accompanied by a report stating that the compilation was conducted in accordance with SSARS promulgated by the Accounting and Review Services Committee of the AIPCA
Moore, CPA, has been asked to issue a review report on the balance sheet of Dover Co., a non-issuer. Moore will not be reporting on Dover’s statements of income, retained earnings, and cash flows. Moore may issue the review report provided the:
Scope of the inquiry and analytical procedures has not been restricted
An accountant may issue a review report on one financial statement, such as a balance sheet, and not on other related financial statements, if the scope of the accountant’s inquiry and analytical procedures has not been restricted
Which of the following procedures is usually performed by the accountant in a review engagement of a non-issuer performed in accordance with Statements on Standards for Accounting and Review Services?
Comparing the financial statements with statements for comparable prior periods
Comparing the financial statements for comparable prior periods (analytical procedures) is a procedure that is usually performed by the accountant in a review engagement of a non-issuer
Which of the following procedures is more likely to be performed in a review engagement of a nonissuer than in a compilation engagement?
Obtaining a representation letter from the CEO
Obtaining a representation letter from the CEO is more likely to be performed in a review engagement of a nonissuer (where obtaining the letter is required) than in a compilation engagement
When an accountant performs more than one level of service (for example, a compilation and a review, or a compilation and an audit) concerning the financial statements of a non-issuer, the accountant generally should issue the report that is appropriate for:
The highest level of service rendered
When an accountant performs more than one level of service (for example, a compilation and a review, or a compilation and an audit) concerning the financial statements of a non-issuer, the accountant generally should issue the report that is appropriate for the highest level of service rendered
Which of the following is NOT true about documentation requirements related to a review of a nonissuer’s financial statements?
The auditor must document evidence obtained about the operating effectiveness of controls
The accountant is not required to evaluate control risk or test the operating effectiveness of controls in a review of a nonpublic entity’s financial statements
Which of the following should be the first step in reviewing the financial statements of a nonissuer?
Obtaining a general understanding of the entity’s organization, its operating characteristics, and its products or services
In reviewing the financial statements of a nonissuer, the accountant’s first step would be to obtain a general understanding of the entity’s organization, its operating characteristics, and its products or services
Which of the following describes how the objective of a review of financials statements differs from the objective of a compilation engagement?
In a review engagement, accountants provide limited assurance, but a compilation expresses no assurance
A review rovides limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles, whereas a compilation provides no assurance
Which of the following actions should an accountant take when engaged to compile a company’s financial statements in accordance with Statements on Standards for Accounting and Review Services (SSARS)?
Perform the engagement even though independence is compromised
An accountant who is not independent with respect to an entity may compile financial statements for such an entity and issue a report. The last paragraph of the report should disclose this lack of independence. The accountant is permitted, but not required, to disclose the reasons for the lack of independence
Which of the following statements would be appropriate in an accountant’s report on compiled financials statements of a nonissuer prepared in accordance with Statements on Standards for Accounting and Review Services (SSARS)?
We were not required to perform any procedures to verify the accuracy or completeness of the information provided by management
The accountant’s report in a compilation engagement should include a statement that the accountant was not required to perform any procedures to verify the accuracy or completeness of the information provided by management
Which of the following procedures would an accountant least likely perform during an engagement to review the financial statements of a nonissuer?
Observing the safeguards over access to and use of assets and records
Observing safeguards over access to and use of assets and records is part of the study and evaluation of the client’s internal control; such an evaluation is not conducted in a review
In an accountant’s review of interim financial information, the accountant typically performs each of the following, except:
Obtaining corroborating external evidence
When performing a review engagement, the accountant should perform procedures to accumulate evidence to provide a reasonable basis for obtaining limited assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with the applicable financial reporting framework. The accountant should use professional judgement to determine the nature, timing and extent of review procedures, which consist primarily of inquiry and analytical procedures. As such, obtaining corroborating external evidence would generally not be required
Which of the following statements would not normally be included in a representation letter for a review of interim financial information?
We understand that a review consists principally of performing analytical procedures and making inquiries about the interim financial information
This statement would likely be found in an engagement letter, not a management representation letter
Which of the following circumstances would generally require an accountant to decline to perform a compilation of financial statements under Statements on Standards for Accounting and Review Services?
The accountant was not able to come to an understanding with representatives of the organization for services to be performed
An accountant should establish an understanding with management and, when appropriate, those charged with governance, regarding the services to be performed for a compilation engagement. An accountant generally should decline a compilation engagement when the accountant is unable to come to an understanding with representatives of the organization regarding the services to be performed
Which of the following statements is true with regard to review services performed under Statements on Standards for Accounting and Review Services?
In a review, an accountant will express limited assurance as to generally accepted accounting principles on the financial statements
In a review, an accountant will express limited assurance as to generally accepted accounting principles on the financial statements. This limited assurance is expressed in the report by the statement “we are not aware of any material modifications”